Doug Ludlow of MainStreet On 5 Things You Need To Succeed In The Modern World Of Finance & Fintech
An Interview With Jason Hartman
Buy. Don’t build. Twenty years ago, fintech was in its very nascent stage. Banks had huge operations teams. Now, with the explosion of fintech, there are so many tools you can use as a founder, a builder or as someone in fintech that you don’t have to rebuild these systems. For example, you can spin up a bank with a few lines of code. Make sure you stand on the shoulders of those who came before you. You can move ten times faster, and your product will be 100 times better since you don’t have to build from scratch. It’s a very slow, expensive process. You don’t have to do that anymore.
As part of my series about the “How to Navigate and Succeed in the Modern World of Finance”, I had the pleasure of interviewing Doug Ludlow.
Doug Ludlow grew up in Modesto, an agricultural town in Central California. Despite Modesto city’s proximity to Silicon Valley, the city is almost entirely cut off from the technology industry, which is the economic engine of the 21st century. He helped start MainStreet in part to bring back good jobs and upward mobility to the people living in his hometown.
Before Mainstreet, Doug split his time between entrepreneurship (founding The Happy Home Company, Hipster, and madKast) and leadership roles at top technology companies, including Google and AOL.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
I grew up in Modesto, an agricultural town in Central California. Despite the proximity to Silicon Valley, it’s almost entirely cut off from the technology industry, which is the economic engine of the 21st century. I helped to start MainStreet in part to bring back good jobs and upward mobility to the people living in my hometown. Before MainStreet, I split my time between entrepreneurship (founding The Happy Home Company, Hipster and madKast) and leadership roles at top technology companies, including Google and AOL.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?
Our very first business model was to build co-working spaces in the suburbs. We got to the point where we thought we could be the WeWork of the suburbs and wanted to inspire the creation of small businesses, startups and remote work. We were going to launch in Sacramento, put down a huge deposit and within a few weeks, Covid hit. We had to completely pivot our model. We spent about $150K over the course of a year on office space that one of our employees used for about three days. We found it funny at the time, but the takeaway is that you have to move away from sunk costs. Real life happens. You can either dig deeper into the hole or accept it and move on.
Are you working on any exciting new projects now? How do you think that will help people?
We have our tax credit that has product market fit. It’s grown quickly in a relatively short amount of time. We’re working to complete it. There are 2,500 tax credits available in the U.S. from the Federal level to the city level, and we only have a fraction of those on our platform. We have a long way to go before I would say that we’re offering a complete product.
Amazon didn’t succeed by offering three books; they had every book. We want to be in a similar place. We want to have every tax incentive and every credit on our platform. We want to develop the greatest library of tax incentives and credits and really be that plug into the government that people really need. It’s really product completeness that we’re working on that will really help people.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When your company started what was its WHY, its purpose?
Prior to MainStreet, I worked at Google. Even though Google’s mission to make the world’s information accessible is really useful, I couldn’t find my “why.” Why am I commuting and spending my days helping a trillion dollar company to get a few extra dollars from ad revenue? I had a hard time figuring out why I was spending my time in the ad department.
I started MainStreet for two reasons: I wanted to make sure that what I was spending my life and what would likely be some peak decades of my career on something I felt had value to me personally. I also wanted to do something that would have a true and meaningful impact on the world. I care deeply about what we’re trying to do. It helps strengthen the American economy, it helps strengthen my local city’s economy, and it changes the lives of entrepreneurs and small businesses owners.
My why: I want to spend my days doing something that matters. I asked myself how I could have as big an impact as possible on those trying to live out their entrepreneurial dreams. It’s a win-win for everyone involved.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
Avoid the illusion of progress. It’s very easy to feel busy but not be productive at all. There are also some days where I clear my calendar, and at first, it feels like I’m being lazy, but I can actually think and make breakthroughs. It’s important to not stay busy all the time; step back to determine whether you’re really moving the needle forward.
It’s also important to recognize that there are some tasks that work and that take up a lot of your time, but they don’t move the business forward. For example, early on in my other companies, we spent so much time looking for the right, cool office space. An office is important, but looking back, I think about how many days or weeks we spent doing that when we could have been developing product or serving customers. So it’s an illusion of progress. If you can, ask yourself if what you’re doing actually matters. That’s a principle I try to apply to myself and my company.
If a fellow business leader would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
It really depends on what type of business and lifestyle you want to have. If you’re a venture-funded company, the expectation is not that you’re going to be generating a nice amount of revenue. It’s that you’re going to have an outsized return of your company. VCs invest in companies that can become the next Facebook, the next Uber or the next Amazon. The minute you take VC capital, you’re signing up for that bargain. It’s all about growth.
But that’s not right for every business. There are some businesses that do extraordinarily well that are bespoke. For some, taking VC capital can destroy the quality they’re working with. It’s really a question of whether you’re willing to spend the next five or 10 years of your life trying to build a multi-billion dollar company in an unnatural way: pumping capital in. It can feel glamorous, but that money comes with an obligation, and there’s very little that’s “fun and games.”
You can grow a bootstrapped company, and it will probably take you longer. But in the end, you’ll own more of it, and it will probably be more aligned to your lifestyle than a VC funded company. Ask yourself what you want the next five to 10 years of your life to look like. If you want to build a billion dollar company, then take the VC capital. But if you want to build a profitable business more aligned with your lifestyle, then bootstrap it. It’s not a pejorative. It’s just a choice that needs to be made.
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
The hard part about being an entrepreneur in the VC world is that you generally don’t set the value of your company. It’s all about what the market would tell you to do. It’s amazing how much of it is out of your control. If you look at companies that were valued in the heyday of 2021 during the October/November peak before things went down, there were companies valued at $10 to $12 billion. But now, they’re marking down to $300 million. It has nothing to do with the changes in their business and everything to do with the changes in the market.
At the seed level, startup valuations are pretty straightforward. Most seed deals are getting done for single digit million dollars. You have no revenue and no product. It’s all based on some combination of your team and any level of traction and your idea. When you start getting into series B, C, D and beyond — this is important for entrepreneurs to know — you start getting judged by public company multiples and your growth. That’s all that really matters. VCs will value your company based on other recent IPOs in your industry and apply that multiple to your growth rate. So when public company multiples are trading at 100 to 200 percent, your company will have a great valuation.
Alternatively, when public company multiples fall to 80 or 90 percent, your valuation will decrease even if your business has grown. I would encourage people to push for what they think is the right valuation for their company, but know that there are factors outside of their control that they need to be aware of before asking for funds. Otherwise, they won’t be in control of this process they’re about to undertake.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
The easy answer? If you’re running a VC funded startup and business is going well but growth has stopped, it might be time to seek out a strategic acquisition. For example, if you have something that really helps with an individual’s personal tax return but you’re not able to grow it, there are companies like Intuit that aggressively buy companies that are no longer on track for growth. But Intuit can plug your product into TurboTax or H&R Block to reach tens of millions of people. This happens a lot with consumer products. If growth is stalled but you still have a fundamentally good business, it may be time to sell the company.
While it’s different in every industry, restarting or resetting growth has to do with your team itself. It’s amazing how much company growth is reflective of team morale and belief in the future. Your engineers will put more care into the products they ship when they think there’s a future. Your sales team will sell harder. Part of this is ensuring that your team knows there’s a vision beyond where they are today. You also may need to bring in new leadership who can try a different perspective that will help growth. Reset the vision or bring in new people who can drive success.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
You have to watch burn like a hawk. People forget that there are a lot of quiet obligations that you don’t really think about but that shrink your burn. It’s important to have a full picture of liabilities and things coming up down the road. People need to prepare in order to not get into emergency mode, take a bad deal or ultimately shut down. I encourage people to understand their burn and where they’re investing their resources.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
Buy. Don’t build. Twenty years ago, fintech was in its very nascent stage. Banks had huge operations teams. Now, with the explosion of fintech, there are so many tools you can use as a founder, a builder or as someone in fintech that you don’t have to rebuild these systems. For example, you can spin up a bank with a few lines of code. Make sure you stand on the shoulders of those who came before you. You can move ten times faster, and your product will be 100 times better since you don’t have to build from scratch. It’s a very slow, expensive process. You don’t have to do that anymore.
Understand the public markets and how much they directly affect your business. That’s especially important in fintech and finance. A lot of entrepreneurs, these last six months, have been blindsided by the macro environment. The war in Ukraine, for example, led to higher gas and food prices and less stability in Europe. It affects a fintech company because it kicked off and exacerbated existing inflation and lowered the public multiple valuation of stocks. Educate yourself beyond your own company and understand how the world at large is affecting it. If you’re selling baseball gloves, for example, that’s a stable business that’s not going to be affected by much. But if you’re selling a cutting-edge financial product, that’s absolutely going to be affected by the market.
You are not your company. Its successes, failures and ups and downs are not your worth as a human being. It’s very difficult for people to pull themselves out of their company. And it’s easy to feel like a genius or that you’re untouchable with successes — or that you’re a terrible person if you’ve had a failure, understanding that so much of this is out of anyone’s control. As a founder, especially in finance, if you recognize that you are not your business, you can make choices that are not based on emotion.
Your company is akin to a sports team: You have to have the right person in the right role at the right stage. As the company grows, that doesn’t always stay true. People at your company early on might not be the right people for “later.” It’s also really easy to overhire. But if you’re looking at an individual to manage a 20-person team who comes from a huge company like Amazon, that’s probably not the right person for your company. You want to model your company not after a family — which is based on unconditional love and you’re always there — but more like a high-performance sports team. They’re all there for the right role at the right time.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
Having a supportive partner who is not in your industry and who can pick up the slack for you and can remind you that you’re a human being is incredibly important. I would not be where I am without my wife, Sara. Otherwise, I would work all the time and associate myself far more with my business. My wife has easily been the secret weapon of MainStreet’s success, because she’s been able to keep me grounded.
Measure your progress; are you just busy? Burnout comes for me when I’m working really hard and don’t see results. If you work hard and don’t see progress, burnout is inevitable. Stress results from having to confront things you can’t really change. Burnout comes from that stress over an extended period of time — putting an enormous amount of energy into things you can’t change. Find a supportive partner and ensure you’re not punching a sisyphean rock — that’s the fastest way to burn out.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
My wife and I have invested in Modesto, my hometown. It was the reason we started MainStreet. We’ve taken an active role in investing in projects that directly benefit the people in my hometown. For example, our big philanthropic goal this year is supporting the Modesto Children’s Museum. Modesto is a city of 200,000 people, but they have to drive to the Bay Area or Sacramento to get to a children’s museum. We’re also supporting scholarships for people in my hometown.
The work that can be done to inspire the creativity, the intelligence and untapped potential that exist in rural cities throughout the world is fascinating. There are an extraordinary amount of opportunities that aren’t being taken advantage of. That’s what much of my future career is going to be about: whether it’s philanthropy, companies forming or other forms of public service down the line.
How can our readers further follow your work online?
Website: https://www.mainstreet.com
Twitter: https://twitter.com/mainstreet (MainStreet)
https://twitter.com/dougludlow (Doug Ludlow)
Facebook: https://www.facebook.com/mainstreetfb/
LinkedIn: https://www.linkedin.com/company/workonmainstreet/ (MainStreet)
https://www.linkedin.com/in/dougludlow/ (Doug Ludlow)
Instagram: https://www.instagram.com/mainstreetwork/ (MainStreet)
This was very inspiring. Thank you so much for joining us!
